Sageworks develops financial analysis tools and provides private company financial information. By doing so, we hope to help people make better financial decisions. Read more on how Sageworks aggregates financial data on private companies on our website; https://www.sageworks.com/

Why Gas Station Owners May Be Smiling

Privately owned gas stations historically have some of the thinnest profit margins in retailing, but in 2013 they experienced their strongest margins in years, according to preliminary data from Sageworks, a financial information company.

Net profit margins, on average, increased to nearly 3%, compared with 1.6% in 2012. At the same time, sales among private gas stations were relatively flat, increasing only about 1% from 2012.

A financial statement analysis by Sageworks shows that gas stations in 2013 experienced less pressure on their margins from key costs (costs of goods sold, or COGS), which were about 87% of sales, on average. Fuel expense is the biggest component of COGS. Third-party data indicate that wholesale prices for resale (“rack” prices) fluctuated through the year, ranging from $2.587 a gallon to $2.989 a gallon for regular but ending 2013 slightly lower than they were at the start of the year.

Sageworks analyst Regan Camp noted that gas station owners may get the most grief from customers when gas prices rise, but generally speaking, they see very little of the relative proceeds from a gallon of gas. Indeed, taxes account for 13% of the average retail cost for a gallon of regular gasoline, crude oil accounts for 69 percent and refining contributes 8%, according to the U.S. Energy Information Administration. Distribution and marketing – costs that include transportation of the fuel to the station, advertising, “swipe” fees for payment cards and any profits earned by a gas station – account for 11% of the cost of a gallon, based on November 2013 data from EIA.

“If you consider the fact that gas stations’ margins are so thin to begin with, any fluctuation in COGS – even if it’s not significant – can have a pretty dramatic impact on stations’ ultimate margins,” Camp said. “If they had big margins, a small fluctuation in costs may not impact them so much.”

With a gallon of regular gasoline recently averaging $3.284 across the U.S, according to AAA’s Daily Fuel Gauge Report, that means gas station owners have been taking home about a dime a gallon recently, compared with about a nickel a gallon last year, assuming the same price at the pump.

In 2008, when prices at the pump hit a record $4.11 for regular, gas station owners for the year had a net profit margin of 0.9%.

Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.

Despite the profitability improvement in 2013, private gas stations still have lower net profit margins on average than most retailers. And the average net profit margin for privately held companies across all industries was more than 8% in 2013, according to data from Sageworks.

Retailers know consumers will go somewhere else to save a few pennies a gallon, so they keep the difference between the selling price and their fuel costs as low as possible, according to the 2013 Retail Fuels Report by NACS, the Association for Convenience and Fuel Retailing. Indeed, while 71% of a store’s total sales are motor fuels, only 36% of profit dollars are generated by fuels, the trade group said in its report. Many gas station owners try to make up for the thin gasoline margins through sales of other products, such as snacks and drinks.

Sageworks, a financial information company, collects and analyzes data on the performance of privately held companies and provides accounting and audit solutions.

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